Subject : Financial Management

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AEREN FOUNDATION’S                                                           Maharashtra Govt. Reg. No.: F-11724

 

Name : Veerthapa                                                                                                                             Marks : 80

Course : Masters in Business Administration (MBA 4 Sem)

Subject : Financial Management

Answer the following question.

Question. 1. What are Strike Price and Option Price? (10marks)

Answer:A stock option gives you the option to buy shares of a given company at a certain price, the strike price, at a later date.

If the stock price (say, $1) rises above the strike price (say, $0.75), you can exercise your option to buy shares at the strike price, and then turn around and sell those shares at the stock price, making $0.25 a share.

Question. 2. How risk and expected return is compared in two distributions? (10marks)

Answer:Expected return and standard deviation are two statistical measures that can be used to analyze a portfolio. The expected return of a portfolio is the anticipated amount of returns that a portfolio may generate, whereas the standard deviation of a portfolio measures the amount that the returns deviate from its mean.

Expected Return: Expected return measures the

Question. 3. Different types of investments time horizons. (10marks)

Answer:A time horizon is the length of time over which an investment is made or held before it is liquidated. Time horizons can range from seconds, in the case of a day trader, all the way up to decades for a buy-and-hold investor or an individual who is investing in a retirement plan. Investment time horizons are determined more by an investor's goals for the funds rather than the mechanism itself.

Question. 4. What is meant by Financial Planning? (10marks)

Answer:Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives. Usually, a company creates a Financial Plan immediately after the vision and objectives have been set. The Financial Plan describes each of the activities, resources, equipment and materials that are needed to achieve these objectives, as well as the timeframes involved.

The Financial Planning activity involves the following tasks;----

·       Assess the business environment

Question. 5. Define current assets and Give four examples (10marks)

Answer:Financial statements are a company's window to the world. They tell the story of how successfully or unsuccessfully a company has performed for any given period. The three most common financial statements are the income statement, balance sheet, and statement of cash flows. Of the three statements, the balance sheet is the one that gives the clearest picture of the financial position of a company. The balance sheet is made up of three different sections: assets, liabilities, and stockholders equity. Each of these

Question. 6. To avoid the problem of shortage and surplus of funds, what is required in Financial management? Name the conceptand explain four points of importance.(10marks)

Answer:Financial Planning is required to avoid shortage or surplus of finance.

 Importance of financial planning is:

1- by planning utilization of finance, it reduces waste ,duplication of efforts and gaps in the planning.

2- it helps in coordinating the various business activities such as sales,purchases, production, finance etc.

Question. 7. Every Manager has to take three major decisions while performing the finance function’ briefly explain them. (10marks)

Answer:The three main financial decisions which are generally taken by a finance manager are as under:

(i) Investment Decision: It refers to the selection of assets in which funds will be invested by the business. Assets which are obtained by the business are of two types, i.e., long-term assets and short-term assets. On this basis, investment decision is also divided into two parts:

Question. 8. How are financial trades made in an over the counter market? Discuss the role of a dealer in the OTC market. (10marks)

Answer:A decentralized market, without a central physical location, where market participants trade with one another through various communication modes such as the telephone, email and proprietary electronic trading systems. An over-the-counter (OTC) market and an exchange market are the two basic ways of organizing financial markets. In an OTC market, dealers act as market makers by quoting prices at which they will buy and sell a security or currency. A trade can be executed between two participants in an OTC market

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